Australian shares have finally rebounded, after plummeting for seven straight days into correction territory on high inflation and recession worries.
The ASX 200 closed 1.4 per cent higher, at 6,524 points on Tuesday.
The financial sector boosted the market, with shares of Commonwealth Bank, Westpac, ANZ and NAB rising between 2.4 and 3.8 per cent.
It comes as Reserve Bank governor Philip Lowe said he expects to discuss hiking interest rates by either 0.25 or 0.5 percentage points at the RBA's July policy meeting.
Dr Lowe also downplayed the possibility of a larger hike, and said he does not see Australia falling into recession.
Mining giants BHP, Rio Tinto and Fortescue Metals also lifted sharply, by around 1.7 to 3.5 per cent.
Energy stocks were some of the best performers, like Whitehaven Coal (+5.3pc), Beach Energy (+4.5pc) and Paladin Energy (+8pc).
Shares of Novonix (+4.3pc), Pointsbet (+9pc), Chalice Mining (+2.7pc) and Imugene (+6.7pc) also rose sharply.
By 4:30pm AEST, the Australian dollar was slightly higher, at 69.6 US cents. But it remains near its weakest level since July 2020.
It is partly being weighed down by falling iron ore prices, on worries about the impact of China's COVID-zero policy.
China is the biggest buyer of Australian iron ore, and the price of the steel-making ingredient has plunged 8 per cent to around $US112 a tonne, according to ANZ data.
"Further falls in iron ore prices can add to downside pressure on the Australian dollar today," said Commonwealth Bank currency strategist Carol Kong.
Ms Kong also said the local currency can slip further because of the "coming sharp slowdown in the world economy", and has forecast it will trade within a range of 60 - 70 US cents for most of the next 12 months.
Meanwhile, the cryptocurrency industry was on edge as bitcoin recovered tepidly above $US21,000 and investors feared that problems at major crypto players could unleash a wider market shake-out.
Oil prices swung higher in volatile trading, with Brent crude futures rising 0.9 per cent, to $US114.13 a barrel.
Spot gold was little changed in holiday-thinned trading, at $US1,837.46 per ounce.
'Reputational damage' for the RBA
In a rare admission, the Reserve Bank said that it has suffered "reputational damage" due to how it handled the ending of its pandemic-era stimulus program (designed to keep short-term bond yields low).
The RBA said its "yield curve control" stimulus was successful for much of its 21-month life. However, the bank has conceded that its withdrawal from the program in late 2021 was "disorderly".
The programme began in March 2020 as part of a massive COVID-19 stimulus package. It was initially aimed at keeping yields on three-year Australian government bonds around 0.25 per cent, though it was lowered to 0.1 per cent later that year.
For most of its life, the plan worked to keep yields and market interest rates lower than they would otherwise have been and to put downward pressure on the local dollar.
But in late 2021, yields began to rise as the market began to price in the risk of an earlier-than-expected increase in the cash rate.
The RBA initially bought bonds to defend the target but in late October stepped away from the market, sending yields surging and triggering heavy losses in bond futures.
The central bank acknowledged its yield target should have ended earlier. The RBA also said it was unlikely to adopt this strategy again, preferring to just purchase bonds in set amounts across maturities.
More volatility ahead
Wall Street was closed for the Juneteenth public holiday, while European markets recovered some of their losses from the recent sell-off.
The pan-European STOXX 600 jumped 1 per cent overnight, with battered banking, travel and energy stocks leading the gains.
That index has shed almost 17 per cent this year so far, as a cocktail of worries from soaring inflation to China's slowing economy and a cost-of-living crisis in the UK dampen investors' appetite for risk.
Overnight, European Central Bank President Christine Lagarde reaffirmed plans to raise interest rates, twice, in the next few months, while fighting widening spreads in the borrowing costs of different euro zone countries.
"We'll continue to see some volatility because inflation, in our view, is not going to start to come down until the end of this year," said Willem Sels, global chief investment officer at HSBC.
Crypto industry 'braced for more to come'
Bitcoin — the world's biggest cryptocurrency — dropped on Saturday to as low as $US17,593, falling below the key $US20,000 level for the first time since December 2020.
So far this year, the volatile cryptocurrency has lost 55 per cent of its value — and 35 per cent this month alone in the cryptocurrency sector's latest meltdown.
Bitcoin's fall follows problems at several major crypto firms. Further declines, market players said, could have a knock-on effect as other crypto investors are forced to sell their holdings to meet margin calls and cover their losses.
Crypto hedge fund Three Arrows Capital is exploring options, including the sale of assets and a bailout by another firm, its founders told the Wall Street Journal in a story published on Friday.
It was also the same day that Asia-focused crypto lender Babel Finance said it would suspend withdrawals.
"We've likely seen the worst of things, in terms of any singular entity suffering, but most in the industry are braced for more to come," said head of financial strategy at fund management firm Solrise Finance Joseph Edwards.
'Domino effect of bankruptcies'
US-based lender Celsius Network this month said it would suspend customer withdrawals.
In a blog on Monday, Celsius said it would continue working with regulators and officials, but that it would pause its customer Q&A sessions.
"There is a lot of credit being withdrawn from the system and, if lenders have to absorb losses from Celsius and Three Arrows, they will reduce the size of their future loan books, which means that the entire amount of credit available in the crypto ecosystem is much reduced," said chief risk office for Japan at crypto liquidity provider B2C2 Adam Farthing.
Smaller tokens, which usually move in tandem with bitcoin, were also hurt.
The second-largest cryptocurrency, ether, was at $US1,129, having dipped below its own symbolic level of $US1,000 over the weekend.
Recent falls in crypto markets have coincided with a sell-off on stock markets, as Wall Street last week suffered its biggest weekly percentage decline in two years on fears of rising interest rates and the growing likelihood of a recession in the US.
Bitcoin's moves have tended to follow a similar pattern to other risk assets, such as tech stocks.
The overall crypto market capitalisation is roughly $US900 billion, according to price site Coinmarketcap, down from a peak of $2.9 trillion in November 2021.
A fall in stablecoins — a type of crypto designed to hold a steady value — is also suggesting investors are pulling money from the sector as a whole.
ABC/Reuters
